Operations Management? What's that!?

Have been a bit busy over the past week and hence a slight delay in writing this post. Anyways, good to see you!

As you know, this blog is about my learning and experiments in operations and supply chain management. I myself am a beginner here and hence the content of my posts, for starts, will primarily be some useful fundamentals, real life examples from the industry and observations/ descriptions of some famed operations and supply chains that I have encountered. Till I gain some kind of hold over the subject, my writing will mostly be based on what I have read, watched and observed.

So, without wasting anymore time writing about what I am going to write, I will just get started with what operations management is and why it is important.

Operations Management? huh? What's that?

Everything in this world is a result of some or the other process. And every process involves some "input" getting converted to some "output". This "output" is the products and services that we, as consumers, need and this process of turning inputs into useful goods and services, we call it production. 

Now, looking from a producer's perspective, he has a lot on his hands. He has to ensure that his production is efficient in terms of the cost and resources used, and at the same time effective in terms of meeting the consumers needs. Besides, it needs to make perfect business sense and must ultimately translate into profits on the balance sheet. Keeping all these things in mind, he must design his production process, continuously test it to ensure that it is working properly, optimize it to meet the changing needs and adapt his business strategy accordingly. For this, he will have to make many strategic and tactical decisions after careful study, analysis and experimentation. This is exactly what Operations Management is all about. 

Why Operations Management?

Rather than directly telling you the benefits of operations management point wise, let us go about it in a slightly more intuitive and round about way. As we earlier established, the motive of production is to meet consumer needs. Based on how effectively any production process is fulfilling consumer needs, we can define the performance of that production process. But now, how do you measure performance? Have a look at the illustration below - 

The Four Parameters for measuring performance

(In the above illustration, cost of the product is equivalent to efficiency since if the producer is able to offer the product at low cost, that must mean he is being able to produce it at an even lower cost, thereby more efficiently)

Let us take an example. Suppose you go to a restaurant and decide to have Chinese food. Maybe you like your food spicy but your colleague has an irritable bowel and would like something easier on the stomach. May be you like your Manchurian with gravy while your colleague loves it dry. Does the restaurant offer such variety? Though it is not possible to cater to each and every whim of the customer, lack of variety may lead to loss of customer. Next, the restaurant claims their Hakka noodles to be the best in the city. Are they really? In fact, are they even authentic Chinese? This is where the quality factor comes in. As is intuitive, quality is a decisive factor in the use of any product/ service. Then, once you have ordered, does the restaurant take too long to serve your food? And finally, the bill. Is the price for the meal justified? Is it too expensive or just right? Cost heavily affects consumption.

Now ideally, an efficient and effective process is the one that provides a variety of good quality products/ services at the right time and at a low/ fair cost. However, realistically, it is not possible to maximize all the four parameters and hence, trade-offs must be made. 

For example, consider a call center. The primary process in a call center is answering calls of customers. Since, the number of call operators at the call center is limited, some customers have to wait till an operator is free. Hence the response time is more i.e. responsiveness is less. However, in this case, every operator is being utilized to his fullest and hence efficiency is high. (efficiency here = value obtained from operators in return for the money spent on their salaries). In order to reduce the response time, the call center could employ more operators. Now, the response time will decrease as more operators will be available to answer calls i.e. responsiveness will be high but the efficiency will decrease as some operators will be left idle for sometime. To optimize both efficiency and responsiveness, a trade-off must be made. And this gives rise to the following illustration which we call an Efficiency Frontier.

The Efficiency Frontier

You can see, that on the efficiency frontier AB, higher efficiency leads to lower responsiveness and vice versa.

Now comes the most important part. The motive behind operations management is to shift the efficiency frontier outwards (AB to CD). So that we obtain both higher responsiveness and higher efficiency altogether! In our call center example, this could be done by training the existing operators so that they finish their calls earlier. Thus customers will not have to wait that long and due to lower call duration, more number of calls will get done in a day. Thus increasing responsiveness and efficiency both. 

The efficiency frontier can be extended to all the parameters and making improvements in the current operations to move it outwards is the responsibility of Operations Management. Since, optimizing these parameters ultimately determines the sales revenue and in turn the profitability of a business, Operations Management is very very important in any business.